1. The appeal is by the revenue and following specific contentions have been raised before us: On the facts and in the circumstances of the case, the learned Appellate Assistant Commissioner is not justified in holding that the provisions of Rules 9A and 9B of the Income-tax Rules, 1962, are not applicable in this case and further directing the Income-tax Officer that the claim for amortization expenses of the assessee should be allowed as per CBDT Circular No. 154 dated 5-12-1975 which stands superseded by the introduction of Rules 9B of the Income-tax Rules, 1962.
2. The respondent assessee is a resident-registered firm. The assessment year involved is 1977-78. The assessee-firm came into being on 19-12-1975 and accounting period observed for the assessment year under appeal ended on 31-10-1976. The business of the assessee-firm is exhibition and distribution of pictures. During the accounting period relevant to the assessment year under appeal, the assessee took on 'minimum guarantee basis' an old film 'Muje Jeene Do'. The amount paid was Rs. 2,00,000 and the film was taken from Ajanta Arts, Bombay. The assessee released this picture on 21-5-1976 but claimed Rs. 1,00,000 as expenses. The ITO, however, was of the opinion that since the minimum guarantee amount was Rs. 2,00,000 and since the picture was released on 21-5-1976 and since the accounting period of the assessee ended on 31-10-1976, the picture having been released 90 days before the end of the previous year, the assessee was required to claim the total of Rs. 2,00,000 as expenses. Accordingly, the assessee was called upon to show cause why the whole expenses of Rs. 2,00,000 be not allowed as expenses for the assessment year under appeal as against the claim of the assessee which stood at Rs. 1,00,000 for the assessment year under appeal and Rs. 1,00,000 for the subsequent assessment year, viz., 1978-79. The assessee filed written replies dated 29-1-1980 and 6-2-1980 and, inter alia, contended that statutory Rule 9B of the Income-tax Rules, 1962, was inserted by the Income-tax (Seventh Amendment) Rules, 1976 and the same was published in the Official Gazette on 30-12-1976 and since the assessee closed the books of account on 31-10-1976, statutory Rule 9B was not applicable. It was also contended that statutory Rule 9B applied in the case of new pictures and not the old one, hence amortization expenses were claimed on the basis of Circular No. 154 of 1974 issued by the CBDT. Reliance was placed on the ratio of the decision of the Hon'ble Supreme Court in the case of Navnit Lal C. Javeri v. K.K. Sen, AAC  56 ITR 198.
The assessee yet further contended that where a circular confers a right or privilege on an assessee and subsequently such circular is withdrawn, the assessee can still claim those rights and privileges conferred by the circular for the period during which the circular was in force.
The ITO did not agree with the contentions raised on behalf of the assessee. He held that Circular No. 154 of 1974 issued by the CBDT stands superseded on account of introduction of statutory Rule 9B and, hence, the assessee cannot enjoy the privilege under the said circular.
He also held that Rule 9B(7)(a) provides for exercise of option in relation to assessment years commencing on 1-4-1973, 1-4-1974, 1-4-1975 and 1-4-1976, which once exercised has to be taken as final for those assessment years and subsequent assessment years and since statutory Rule 9B was strictly to be followed for the assessment year under appeal, the assessee having not done so, the assessee was to be allowed the whole of the amount, viz., Rs. 2,00,000, as amortization expenditure. He relied on the ratio of the decision of the Hon'ble Supreme Court in the case of Sri Ramamohan Motor Service v. CIT  89 ITR 274 for the proposition that strict compliance with the requirements of statutory rules is called for, and, hence, substantial compliance is not sufficient.
3. The assessee being aggrieved preferred an appeal and before the learned AAC, contentions raised by the assessee before the ITO were reiterated, it was further contended that the application of statutory Rules 9A and 9B is illegal and arbitrary since these rules were inserted by the Income-tax (Seventh Amendment) Rules, 1976 on 30-12-1976, whereas the previous year of the assessee ended on 31-10-1976 when the books of account of the assessee were closed.
Reliance was placed on the ratio of the decisions of the Hon'ble Supreme Court in the case of Navnit Lal C. Javeri (supra) and in the case of Ellerman Lines Ltd. v. CIT  82 ITR 913. Full Bench decision of the Kerala High Court in the case of CIT v. B.M. Edward, India Sea Foods  119 ITR 334 was also relied, apart from the decision of the Gujarat High Court in the case of Laxmichand Hirjibhai v. CIT  128 ITR 747. The learned AAC agreed with the contentions raised on behalf of the assessee and held that on the facts of the assessee's case statutory Rules 9A and 9B are not applicable since the picture 'Muje Jeeno Do' is a re-issue and both the rules were applicable in the cases of new pictures where cost or production is involved. He also held that Rules 9A and 9B were inserted on 30-12-1976 whereas the assessee firm closed its books of account on 31-10-1976 and during that accounting period Circular No. 154 of 1974 was prevalent.
He directed the ITO to allow amortization expenses to the assessee on the basis of the circular.
He also agreed with the contention raised on behalf of the assessee that in the case of re-issued pictures 'royalty' was to be paid since there was no 'minimum guarantee'. He, accordingly, directed the ITO to substitute the word 'royalty' in place of words 'minimum guarantee'.
4. This time the revenue is in appeal but the ground of appeal as taken before us does not object to the finding of the learned AAC that the amount paid by the assessee at Rs. 2,00,000 to Ajanta Arts, Bombay, is not 'minimum guarantee' but 'royalty', as such, we proceed on this basis.
5. We have given our due and careful consideration to the submissions made before us as also to the facts as are found out from the orders of the lower authorities. We have also perused very carefully copies of the assessee's letters dated 29-1-1980 and 6-2-1980, addressed to the ITO concerned as also copy of the Board Circular No. 154 [F. No.201/5/71-IT (A-II), dated 5-12-1974] and copy of extracts from the agreement dated 1-1-1976 entered into by the assessee and Ajanta Arts relating to the picture 'Muje Jeene Do'.
6. To start with we like to make it clear that what the assessee has got is a re-issue of picture-film 'Muje Jeene Do' and the said film is an old one and according to agreement dated 1-1-1976 the assessee has a right of exploiting the said picture film commercially in the territory of Delhi-UP Circuit and the duration of the agreement is 5 years while the consideration fixed is a sum of Rs. 2,00,000 as and by way of net royalty payable by the assessee to Ajanta Arts. Since the picture is a re-issue of an old film, we are of the opinion that statutory Rule 9B has got no applicability since statutory Rule 9B is to be read with statutory Rule 9A and statutory Rule 9A speaks of new films, viz., films produced originally, since for the purposes of statutory Rule 9A, under Explanation (ii) to Sub-rule (1), the cost of production in relation to a feature film means the expenditure incurred on the production of the film, not being (a) the expenditure incurred for the preparation of the positive prints of the film ; and (b) the expenditure incurred in connection with the advertisement of the film after it is certified for release by the Board of Film Censors. Under Explanation to Sub-rule (1) of statutory Rule 9B, for the purposes of Rule 9B, 'cost of acquisition' in relation to a feature film, means the amount paid by the film distributor to the film producer as defined in Rule 9A under an agreement entered into by him with such film producer for acquiring the rights of exhibition and, where the rights of exhibition have been acquired on a minimum guarantee basis, the minimum amount guaranteed, not being (i) the amount of expenditure incurred by the film distributor for the preparation of the positive prints of the film; and (ii) the expenditure incurred by him in connection with the advertisement of the film.
7. Now on the facts of the assessee's case it is a re-print of an old film, hence, vis-a-vis, Rule 9A, there is no cost of production and accordingly what the assessee has paid to Ajanta Arts is a lump sum amount of Rs. 2,00,000 rightly termed as royalty for exploiting the said old film but a re-print issue for the duration of 5 years and in this view of the matter Rule 9A or 9B do not come into play. We hold accordingly.
8. Since statutory Rules 9A and 9B are not applicable on the facts of the assessee's case, the main grievance of the revenue stands rejected.
However, since the learned Commissioner (Appeals) has allowed benefit-relief to the assessee relying upon Circalar No. 154, dated 5-12-1974 and since the said circular relates to amortization of the cost of production of a feature film, the said circular is also not applicable, we hold so also, however, Circular No. 154, dated 5-12-1974 can certainly be taken as a guide in the case of the assessee for allowing royalty in his case and since according to paragraph 6 of the said circular, the Board have decided that the cost of acquiring distribution rights should also be treated in the hands of the distributor in the same way as the cost of production is treated in the hands of the film producer and the rates of the allowance and manner of allowance has to be worked out in accordance with paragraphs 4 and 5 of the said circular, we are of the opinion, that this circular can be availed of, by the assessee, by the revenue, as also by us, as a guide and since according to this circular, the cost of acquiring distribution rights are allowable as has been claimed by the assessee at the assessment stage. That apart since the revenue is in appeal and since we have held that what is the subject-matter, is the royalty and not the minimum guarantee amount, we see no reason to interfere in the impugned order of the learned Commissioner (Appeals) though on the reasoning as above.
9. The net result is, that on the facts and in the circumstances of the case, the assessee has justifiably claimed deduction. We hold, accordingly, with the result that the appeal by the revenue fails and stands dismissed.